The rapid accumulation of genome sequences and protein structures during the last decade has been paralleled by major advances in sequence database search methods. The powerful Position-Specific Iterating BLAST (PSI-BLAST) method developed at the NCBI formed the basis of our work on protein motif analysis. In addition, Hidden Markov Models (HMM) and protein structure comparison methods were applied. During the last year, we made further progress in detailed analysis of the classification, evolution, and functions of several classes of proteins. Specifically, we studied in detail the protein domains that are involved in eukaryotic RNA interference mechanisms and showed that the protein machinery of eukaryotic RNAi was pieced together from ancestral archaeal, bacterial and phage proteins that are involved in DNA repair and RNA processing. We also used computational methods to identify a novel toxin-antitoxin systems that are predicted to function via RNA binding or cleavage and other, diverse mechanisms. We explored the general mechanisms of protein innovation in eukaryotes, in particular, the patterns of evolution of vairous classes of multidomain proteins and showed that a limited repertoire of promiscuous domains makes a major contribution to the diversity and evolvability of eukaryotic proteomes and signaling networks. We investigated the distribution and evolution of several individual domains that might have been important for the origin of eukaryotic cells. In particular, it has been shown that the 4-vinyl reductase (V4R) protein domain present in bacteria and archaea is homologous to the Bet3 subunit of the TRAPP1 vesicle-tethering complex that is conserved in all eukaryotes. This suggests, for the first time, a prokaryotic origin for one of the key eukaryotic trafficking proteins.